Price of state bonds dips with popularity of panel systems

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The push to add more solar power to the electrical mix in Massachusetts has been so successful that one of the key financial incentives from the state — bond-like certificates earned by generating energy with solar panels — has taken a hit in the marketplace.

Robert Scherer has generated four solar renewable energy certificates since installing solar panels on his Ashland home in October 2011, but so far has sold only one — for $204, far below the $500 to $600 he had been expecting.

“It is interesting that this market seems to be a victim of its own success,” Scherer said. “People have to have their eyes open when they come into the market.”

Solar installations like Scherer’s earn Solar Renewable Energy Certificates for every 1,000 kilowatt-hours of electricity they generate, and electric utilities are required by law to buy enough solar certificates to prove solar power generates a certain percentage of their retail sales.

Selling the certificates to utilities is a way for people with solar installations to recoup some of the cost of installing the equipment. The certificates provide an incentive.

The problem, according to solar energy proponents, is that the number of solar installations and certificates have grown so much in recent years that the value of the certificates is greater than the amount that utilities are required to buy. The situation undercuts the value of individual certificates, and in a worst case, can make a certificate unmarketable.

The oversupply of certificates, and the resulting drop in trading prices prompted the state Department of Energy Resources to schedule its first auction of unsold certificates, to be held later this year.

‘I was happy how it was going and how I was toldit was going togo, but, whoa, the bottom dropped out. . . . I guess I have to be patient and keep my faith in the broker.’

The solar credit clearinghouse auction is unique to Massachusetts.

Prices are fixed at $285 per credit — or $300 minus a $15 fee — and bidders bid for blocks of certificates. Unsold certificates will be returned to sellers with a
life span extended to three years. Certificates are generally good only for the year in which they were generated.

“The SREC auction has not been held before, since it is only applicable when there is an oversupply. Otherwise people find buyers,” said Dwayne Breger, director of the state agency’s Renewable & Alternative Energy Development Division. “We haven’t had an auction yet, but the [department] is prepared to hold an auction and an auctioneer has been hired to hold one.”

Breger said the state will open an account for unsold certificates to be deposited between May 16 and June 15, with the auction to be held in three rounds in July to coincide with the end of the trading season for the 2012 certificates.

Anticipation of the inaugural solar credit clearinghouse auction has led to uncertainty in the market, according to Brad Bowery, chief executive officer at San Francisco-based SRECTrade Inc.

“I think the nervousness is based on whether or not the auction clears. If it clears this year and the SRECs are sold at that fixed price, a lot of those concerns will go away,” Bowery said. “There are fears the SRECs will not clear and will be dumped back onto the market. Everyone has a different opinion on it. My opinion is we will know a whole lot more when it happens.”

The state’s requirement that utilities buy solar certificates grows with the supply of solar power, and the energy department sets the requirement at the end of August. For last fiscal year, utilities were required to purchase the equivalent of 81,559 megawatt-hours of solar power.

For this year, the power companies will be required to purchase certificates equivalent to 135,495 megawatt-hours, Breger said.

But SRECTrade’s Bowery said the state calculations are based on 2-year-old data, which leads to a cycle of oversupply and undersupply that will balance itself out over time. Meanwhile, he sees a market with some sellers holding out for the auction price, others willing to sell now at a discount, and buyers in no hurry to do anything until they have to.

“We are going to learn a lot more when they run that last-chance auction,” Bowery said.

The solar certificate trading market opened in Massachusetts in 2010 at a time when there was an undersupply of certificates, prompting the state to establish a ceiling for trading prices that kept certificates trading in the $500 range until last year, when suddenly there was an overabundance of commercial and residential solar projects generating electricity and earning certificates.

Massachusetts prices bottomed out at $175, Bowery said, but rebounded to $206 in most recent trading. He doubts the prices will rise much above $285 any time soon.

The price drop caught Ned Ligon by surprise. The retired Latin teacher had planned to pay off the $27,000 solar energy system installed on his Wrentham home in 2010 within seven years, based on federal and state tax credits and rebates, and his quarterly projections of $500 certificate sales.

The tax credits took care of the first $13,000, and for a while the solar certificates seemed to be paying off as Ligon had hoped, he said. He received checks for $470.58 and $497.55 in 2011, and two checks for $502.20 last year.

However, the most recent check from his broker was for $204.60.

“I was happy how it was going and how I was told it was going to go, but, whoa, the bottom dropped out,” Ligon said.

His rooftop array of 18 solar panels was installed by SunBug Solar of Somerville, where company vice president Ben Mayer said homeowners are given projections based on ranges of solar certificate prices that include what has been mistakenly seen as a state-established floor price of $285 — the fixed price for the clearinghouse auction that is ramping up for its debut in July.

“From the point of view of SunBug, our model is based on long-term stable growth,” Mayer said. “I love the wonderful things that have happened in Massachusetts in terms of solar adoption. I’m not so interested in explosive growth. I’m not interested in a boom-bust.”

A solar boom is exactly what Massachusetts has seen since 2007, with solar power installations growing from a total of just 4 megawatts to 194 megawatts of power today, according to the Massachusetts Clean Energy Center.

Mayer and Bowery both said the state is doing a good job keeping the Massachusetts market balanced at a time when other states, like New Jersey and Pennsylvania, have seen more dramatic swings in solar certificate pricing. New Jersey, the biggest certificate market in the country, has seen prices peak at $680 and drop as low as $70, while Pennsylvania has swung from $330 to just $10, Bowery said. Most recent trading has seen solar certificates fetching $90 in New Jersey while Pennsylvania prices are just $12.

“I don’t think SREC fluctuation will be a long-term problem. We are experiencing a first-ness, for lack of a better term,” Mayer said. “I’m psyched for August, when we will all see how this plays out. It will stabilize things for long-term growth.”

As for Ligon, a self-described “spreadsheet nut,” he still considers himself to be ahead of the game. He has records of his electric bills dating back to January 1988, when his family moved into the 2,600 square-foot home. Most years, they paid about $700 for electricity, Ligon said, but he and his wife, Barbara, ended up with credits of $128 in 2011 and $138 last year.
The empty-nesters donated the profits to their church, since by law they cannot get paid cash by the electric company for credits earned by generating excess power.

“My records show we produced over 9,000 kilowatt-hours. That is nine SRECs. I got reimbursed for five of them. I have four more out there waiting to be cashed in,” Ligon said.

“I guess I have to be patient and keep my faith in the broker that they are going to do what it takes to get us the best price. They have indicated they are going to be putting the SRECs into the auction.”